Failure To File HSR Notification Form Can Be Costly

On September 25, 2012, the Federal Trade Commission (“FTC”) announced that Biglari Holdings, Inc., which owns Steak 'n Shake and Western Sizzlin restaurant chains, agreed to pay $850,000 in civil penalties to resolve allegations that it failed to make a premerger notification filing in connection with its acquisition of 8.7% of the outstanding voting securities of Cracker Barrel Old Country Store, Inc. http://www.ftc.gov/opa/2012/09/biglari.shtm Premerger Rules

The Hart-Scott-Rodino (“HSR”) Act requires that parties notify the FTC and the Department of Justice (“DOJ”) of transactions that exceed $68.2 million. After submitting the notification form, parties must observe a waiting period before closing their transaction while the two agencies determine whether the transaction may harm competition.

Allegations

On September 25, the DOJ filed a complaint on behalf of the FTC in the U.S. District Court for the District of Columbia. According to the DOJ's complaint, in May and June 2011, Biglari Holdings acquired voting securities of Cracker Barrel. On June 8, 2011, Biglari Holdings exceeded the then-$66 million threshold for HSR filings, and continued to acquire additional voting securities through June 13, 2011. The complaint alleges that, at the time of its acquisitions, Biglari Holdings intended to actively participate in the management of Cracker Barrel, including seeking a seat on the company's board of directors.

Investment Intent

Biglari Holdings released a statement indicating that the FTC mischaracterizes Biglari Holdings' investment intent. The statement indicates that Biglari Holdings has made clear in all of its public filings that it has no intention of becoming actively involved in day- to-day management or in seeking control of the Board of Cracker Barrel. At the same time, however, Biglari Holdings has been trying to gain a seat on Cracker Barrel's board of directors. Reportedly, Biglari Holdings will nominate Chairman Sardar Biglari and the company's vice chairman, Philip L. Cooley, for Cracker Barrel's board at the company's annual meeting November 15, 2012.

Lessons Learned

The enforcement action sends a strong message to corporate executives and lawyers to take HSR reporting requirements seriously. The HSR Act's investment exemption is limited to acquisitions that are “solely” for the purpose of a passive investment and does not apply if a corporation or individual intends on participating in the business of the company being acquired. The exemption applies to voting securities acquisitions of 10% or less. In alleging that the exemption did not apply, the complaint stated that shortly after the 2011 acquisition Biglari sought Cracker Barrel board representation and proposed business changes to Cracker Barrel's top management. The antitrust agencies have construed the exemption narrowly and the agencies have made it abundantly clear that they will prosecute those that rely on aggressively broad interpretations of HSR exemptions.

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